LITIGATION/CONTROVERSY

The Effect of on UK Protection and the and Practical Steps to Be Taken Now and in the Future JULY 2016

The UK has voted to leave the . This will not affect the UK’s position as one of the most important IP jurisdictions in Europe. However, leaving the European Union will have an impact on substantive IP law in the UK. The extent of the changes to UK IP law will depend on the future relationship that the UK has with the European Union. The forthcoming Unified

Patent Court has also been affected and its introduction will now be delayed, with the length of the delay depending on the extent of political will to push it forward quickly. We discuss here the effect of Brexit on UK IP law and the Unified Patent Court, and the practical steps that you should consider taking in light of this momentous decision.

Attorney Advertising Practical steps that you need to consider taking in light of Brexit to protect your IP position

Agreements Designs For the same reasons as those discussed above in relation to You should ensure that future agreements, including license EU , in light of the uncertainty, it is advisable for agreements, coexistence agreements, collaboration agreements UK registered designs to be applied for in the future, rather and IP security agreements, referring to the “EU” spell out than relying on Community registered design rights for that the UK is included. It would be advisable also to indicate protection in the UK. that Scotland is included in the UK, in light of the potential for a second independence referendum following the Brexit Patents vote. EU unitary rights, such as EU trademarks or rights, will no longer apply to the UK after it leaves the The traditional European patent system will not change. EU and it is likely that a “converted” right will be available. The factors relevant to the decision as to whether or not Agreements should expressly cover any UK rights which have to opt out European patents from the Unified Patent Court been “converted”. (UPC) in the future (see our previous update) remain much the same, although the advantage of being in the UPC is likely to be somewhat diminished if the UK is not to be part Filing strategy of it. The timeframe for deciding when to opt out has altered significantly in light of the delay in the commencement Trademarks of the court.

While there is likely to be a converted UK right which will retain the priority of an EU , the process (and Injunctions conversion fee) are unknown. Going forward, at least when filing new applications, you should file national trademarks in If you have obtained a pan-European injunction for the UK rather than relying on EU trademarks for protection infringement of an EU unitary right, such as an EU trademark in the UK. Existing national UK trademark registrations or a Community design, it may be necessary to apply to the should not be surrendered or allowed to lapse in favor of an EU UK court to ensure that the injunction will continue to apply trademark. If an EU trademark application has been filed in in the UK (unless legislation is passed which automatically the last six months, consideration should be given to applying extends such injunctions to the UK). The injunction may have for a UK registered trademark, claiming priority. been expressed to prevent infringement of the unitary right, or infringement in the EU. Also, even if the injunction is not Trademark owners will also need to ensure that their marks are expressed in that way, it would have been ordered on the basis used in the UK or else risk losing their UK registrations. While, that the unitary right was infringed, and it is not certain that at present, under the EU trademark regime, it is possible to this would be a sound basis for maintaining the injunction, retain protection in the UK via an EU trademark by using the without a UK court or legislation confirming it. mark in a number of Member States other than the UK, under a converted UK right (or national registration) use in the UK will be required. Similarly, insofar as use in the UK has been relied upon to maintain an EU trademark, trademark owners will need to ensure that in the future their EU trademarks are used elsewhere in the EU (in any event use in one Member State is unlikely to be sufficient). BACKGROUND THE IMPACT OF BREXIT ON IP RIGHTS: OVERVIEW

On June 23, the UK voted in a referendum to leave the The effect of EU law on UK IP rights is all pervasive. First, the European Union by a 51.9% to 48.1% majority. Although the Treaty on the Functioning of the European Union (TFEU) referendum is not legally binding, leading politicians have provides for the freedom of movement of goods (which leads indicated that they will implement the decision. Article 50 of to the principle of exhaustion of IP rights) and sets out EU the (part of the Treaty) sets competition (antitrust) law (which affects license, settlement out a mechanism for withdrawing from the EU. A Member and assignment agreements, and the enforcement of IP rights, State gives formal notice of withdrawal and then negotiates an including in relation to FRAND-encumbered Standard exit agreement with the EU. After two years from the date of Essential Patents). Second, the EU has passed regulations the notice (subject to an extension to be unanimously agreed), which have “direct effect” in UK law, without requiring the Member State is no longer a member of the EU, even if an any further implementation by the UK. These include EU exit agreement has not yet been reached. trademark rights, Community design rights (registered and unregistered), Community plant variety rights, protected The UK Prime Minister David Cameron, who had campaigned geographical indications and protected designations of for a “remain” vote, resigned on June 24 as his position had origin, and supplementary protection certificates. There are become untenable. Because the campaigners for a “leave” vote also regulations relating to customs enforcement, choice had not set out a position for the UK following a vote to leave, of jurisdiction and choice of law. Third, the EU has passed the Prime Minister did not invoke Article 50 immediately, as directives which the UK is required to implement in national it would not be in the UK’s interest to start the time running law. Therefore, the UK law governing national trademarks, on the two-year period in those circumstances. A new Prime copyright (and related rights), registered designs, biotechnology Minister, Theresa May, was appointed on July 13 and it may be inventions and, in the future, trade secrets are also all affected several months before notice is given under Article 50, while by EU law. the UK's negotiating position is being developed. Most immediately affected by the UK’s exit from the EU will In light of the lack of certainty as to what arrangement will be EU unitary rights, such as the EU trademark (previously be sought by the UK, and the uncertainty as to how the exit known as the Community trademark), the Community design negotiations will proceed, is not clear what form the final rights (registered and unregistered) and the Community plant arrangement will take. In particular, it is not clear whether the variety right. These rights apply across all Member States of the UK will remain part of the European Economic Area (EEA), EU. They will no longer apply to the UK upon its exit, as their pursuant to the EEA Agreement between the EU Member scope is limited to the Member States.1 Also, various IP rights States and Iceland, Norway and Liechtenstein (often referred that have been provided for by means of EU regulations will to as “the Single Market”). While being part of the EEA is no longer apply directly (for example, geographical indications important for a large number of sectors in the UK, including and supplementary protection certificates) and legislation will the financial and car manufacturing sectors, this will depend be required to incorporate them into UK law or to replace them on whether it is possible to introduce restrictions on freedom with alternatives. of movement of people in the UK. Freedom of movement of people is considered by the EU to be a crucial aspect of the If the UK remains within the EEA, the legislation governing Single Market, and it may not be politically acceptable to allow many other IP rights will remain much the same because non- the UK to compromise this. EU EEA states are required to implement a large number of EU IP directives (and also a limited number of regulations). These The UK’s leaving the EU will have a significant impact on IP rights include national registered trademarks, copyright and intellectual property rights, as so much of UK intellectual related rights, including database rights, national registered property law derives from the EU. If the UK is not part of the designs, trade secrets, patents for biotechnology inventions EEA, then the effect will, over time, be even greater.

1 Unless the UK unilaterally extends the scope of unitary rights to the UK, as Jersey has done in relation to EU trademarks. This would not be to extend the scope of the unitary right as such, but a decision to treat the unitary right as having effect in the UK. and supplementary protection certificates. Nonetheless, the UK proposal for a pan-European patent court was rejected by the courts would not be bound to apply decisions of the Court of CJEU on the basis that it had involved non-EU states (Opinion Justice of the European Union (CJEU) as to the interpretation 1/09). Assuming that the UK is not involved in the UPC, it of the directives and regulations although, in practice, CJEU is inconceivable that the central division section relating to decisions would be persuasive. It might be expected that the life sciences and pharmaceuticals that was due to be based in UK courts would apply the same approach to CJEU decisions , will still be located there. as they do to decisions of the (EPO). Such decisions are not binding upon UK courts, but the courts Nonetheless, the UPC and the will be able to seek to follow them where possible, unless they disagree with continue, without the UK. Although the attractiveness of the them. Moreover, as a member of the EEA, the UK would be court and unitary patent may be somewhat diminished, they subject to the EFTA Court, which fulfils a similar role for non- will nonetheless be attractive, with the UPC still having a EU EFTA states as does the CJEU for EU ones, but which must jurisdiction over a territory with more than 350 million people. take “due account” of CJEU case law. The EFTA Court issues In time, once the inevitable teething difficulties are out of the opinions which are “advisory”, however in practice they are way, the UPC is likely to be a significant patent litigation forum. followed by the non-EU states. The implementation of the UPC will, however, be delayed. Also, If the UK were to exit the EEA altogether, subject to what is the unitary patent will be held up because it is dependent upon agreed with the EU, it would then not be required to maintain the UPC. As the UPC Agreement currently stands, in order any EU law. However, as a practical matter, it would not to come into force, it must be ratified by at least 13 Member be able to replace all of the legislation immediately in any States, which must include the UK (as one of the three Member event, and it is quite possible that it would retain much of States with the most European patents), along with and the law indefinitely. There would, however, undoubtedly be . Subject to what happens during the exit negotiations amendments to the legislation where it was considered that and whether the UK can be involved after all, it seems unlikely particular features of the old EU-derived law were not effective, that the UK will ratify the UPC Agreement much before its exit and again, the UK courts would be free not to follow CJEU (as part of an overall agreement), or indeed it may not ratify decisions as to the interpretation of the EU-derived law. So, in it at all before exit. Also, assuming that the life sciences and time, there would be some divergence. pharmaceutical section of the central division will no longer be in London, the UPC Agreement will need to be amended. Below, we consider the various different IP rights and how they Again, it seems unlikely that the UK would agree to such an will be affected by the UK’s exit from the EU. amendment much before its exit, if at all. Once the amendment has been made, a further ratification process would be needed. Given that it will be over two years before the UK finally exits, PATENTS it may be at least two years before the UPC (and therefore the unitary patent) can be taken forward. The Effect on the Unitary Patent and the Unified Patent Court Alternatively, if there is political will, the UPC Contracting States may decide to enter into a second UPC agreement, in Although we understand from a speech given by the UK almost identical terms, which does not require ratification Minister for Intellectual Property on June 29 that the by the UK, and which does not provide for a section of the continuing involvement of the UK in the Unified Patent Court central division to be in London. That would still take time, as (UPC) and unitary patent will feature in the preparation of the Contracting States would need to agree where the central the UK’s negotiating position, and various commentators division section would be, and it would then need to be ratified. have put forward proposals as to how the UK’s involvement Nonetheless, this may reduce the delay. could be made to work from a legal perspective, it is unlikely that, as things stand, the UK would be able to be part of the The UPC agreement and unitary patent regulation were pushed new system in its current form if it leaves the EU. A previous through extremely quickly, with great political determination. It seems likely, therefore, that although there will now patentability of inventions involving the use of human embryos certainly be delay, there will be political will to progress the for industrial or commercial purposes. UPC as quickly as possible. The EPO has been ready to grant unitary patents for some time and, on June 24, the day of If the UK were to exit the EEA altogether, it would not be the referendum result, EPO President Battistelli said: “The required to retain any EU IP law, although it would still be Office underlines that the outcome of the referendum has no likely to do so for the indefinite future. One area of law which consequence on the membership of the UK to the European it may choose to change is that relating to supplementary Patent Organisation, nor on the effect of the European Patents in protection certificates. The supplementary protection the UK. Concerning the Unitary Patent and the Unified Patent certificate regulations are notoriously poorly drafted pieces Court, the Office expects that the UK and the participating of legislation, and have not been helped by the judgments of Member States will find a solution as soon as possible which the CJEU interpreting them. The UK may decide to provide will allow a full implementation of these so-long awaited a completely new regime for extending patent terms for achievements.” In the meantime, the Preparatory Committee medicinal (and plant protection) products, where delays in of the UPC has indicated in a statement that it will continue to obtaining marketing authorizations are involved. progress the logistical aspects of creating the new court. TRADEMARKS The Current Patent System The scope of EU trademarks (formerly known as Community Brexit will have little effect on the current patent system. trademarks) is limited to EU Member States. Upon the UK EU law has had limited influence on patent law, which is exiting the EU, these unitary rights will no longer cover the governed by the European Patent Convention (EPC), not an UK. There will almost certainly be a process for obtaining EU instrument. European patents are granted by the EPO, a UK right which retains the priority of the EU trademark. which is not an EU institution. Therefore, European patents However, as with much else, there is no clear idea as to what will continue to be granted by the EPO, and will continue to be the process would be, and whether there would be any fee for enforced and revoked in UK courts. such a “conversion”.

There are some specific aspects of patent law that are As regards national UK trademark registrations, if the UK affected by EU law. These include (i) the supplementary remains in the EEA, the would continue protection certificate (a right granting an extended patent to apply and the UK Trade Marks Act will not change (beyond term for medicinal and plant protection products); (ii) the how it must change in any event to implement the latest law relating to biotechnology inventions, which is subject to directive). Even if the UK were to leave the EEA, there would the biotechnology directive; and (iii) the intersection with seem to be no need to amend the UK Trade Marks Act. competition law, which, for example, provides defenses against the enforcement of FRAND-encumbered Standard Essential Once the UK leaves the EU, it will no longer be bound by CJEU Patents. case law. The CJEU’s interpretation of trademark law has not been widely respected and, in this area, it is possible that UK If the UK remains in the EEA, EU law will continue to apply judges will take their own view more often than in other areas. in these areas. One difference would be that the CJEU’s Therefore, in time, some divergence from EU trademark case judgments interpreting relevant regulations and directives law can be expected. would no longer be binding (although they would still be persuasive). Therefore, over time, there would likely be some The law relating to unregistered trademarks (passing off in divergence in the case law. One area, in particular, in which England) has never been harmonized by the EU, and therefore it is thought that English patent judges may differ from the this will remain unchanged. CJEU, is in relation to the interpretation of the exclusion of COPYRIGHT AND DESIGNS TRADE SECRETS AND CONFIDENTIAL INFORMATION A great deal of UK copyright law and that of related rights, including database rights, is derived from various EU As matters stand, UK law on breach of confidence has directives. If the UK remains in the EEA, those directives will developed out of common law and it is not affected by EU continue to apply, although again CJEU case law will not be law. However, the trade secrets directive was passed by the EU binding. Even if the UK were to leave the EEA, it seems likely Council on May 27, 2016 and is required to be implemented that the UK would have to retain the legislation in the short by all Member States by July 2018. This sets out minimum term and would retain it for the most part in the long term. In standards that Member States are required to adopt in their time, it might be expected that differences would emerge, both law of trade secrets and breach of confidence. It is not known in the legislation and its interpretation. whether the UK will implement this before it exits the EU. If it remains in the EEA, it will need to implement it in any Designs in the UK are protected by various different rights event. While this directive would not have a major effect on – copyright, Community registered designs, Community UK law in the short term even if implemented, it would likely unregistered design rights, UK registered designs and UK have an effect over time, once the CJEU begins to interpret unregistered design rights. it. If the directive is not implemented, then there will be no change from the existing common law, although UK judges Community registered designs and Community unregistered may nonetheless be influenced by developments elsewhere in designs are, like the EU trademark, unitary rights and they the EU. extend only to EU Member States. Therefore, once the UK leaves the EU, they will no longer cover the UK. As with the EU trademark, it can be expected that a converted national right OTHER RIGHTS AND MEASURES will be available to those with Community registered designs, which will retain priority, although there is no certainty as Certain rights and measures that the UK is require to provide to how this will operate. On the other hand, the Community by virtue of the Agreement on Trade-Related Aspects of unregistered design right may not survive at all. It is a short- Intellectual Property Rights (TRIPS), such as rights protecting lived right (with a term of only three years from publication of geographical indications and customs enforcement measures, the design) and the UK has its own, homegrown, unregistered have been provided for under UK law only by virtue of EU design right. regulations having direct effect. They have, therefore, never been legislated for directly in the UK. Upon the UK leaving The UK unregistered design right will be unaffected, as it did the EU, such regulations will cease to have effect in the UK. not originate from EU legislation, although the qualification The UK will, therefore, be required to legislate to provide such for the right by virtue of residence or place of business in the rights and measures so as to comply with its obligations under EU, or first marketing of articles made to the design in the EU, TRIPS. It is possible that the existing EU regulations may might be revisited. The UK registered design right is affected simply be expressly adopted. by the designs directive, which requires EU Member States to harmonize their national registered design rights. If the UK Another area where new provisions would be required if the remains in the EEA, then the directive will continue to apply UK were to leave the EEA relates to data exclusivity in the (although the UK courts will not be required to follow CJEU medicinal and plant protection products fields, although decisions). Even if the UK does leave the EEA, it does not seem the precise form that they would take would depend on the likely that there would be any significant changes to the UK regulatory framework that the UK adopts for such products. registered design right, at least in the medium term.

EXHAUSTION OF RIGHTS FUTURE INTERNATIONAL INTELLECTUAL PROPERTY LITIGATION AND WILMERHALE Freedom of movement of goods is one of the fundamental principles of the EU, provided for under Article 34 of the TFEU. The UK has long been one of the most important intellectual This principle conflicts with intellectual property rights, which property jurisdictions in Europe, along with Germany, and it can potentially prevent importation of goods into Member will continue to be, with major international litigation being States. Article 36 of the TFEU therefore provides a specific conducted in at least those two jurisdictions. With highly qualified exception for intellectual property rights from the respected specialist IP judges and lawyers, a thorough common principle of freedom of movement. The CJEU has interpreted law procedure allowing for a detailed inquiry (as well as the this to mean that the principle of freedom of movement does availability of an alternative streamlined procedure in smaller not apply to the “specific subject matter” of IP rights, that is to cases), and jurisdiction over one of the largest markets in say, the right to make products and put them into circulation Europe, the UK courts attract parties litigating their important for the first time. Therefore, once a product has been put onto international IP disputes and heavily influence other European the market in any EU Member State with the consent of the courts. This will not change because of Brexit, not least because IP right holder, all IP rights in relation to that product are most international IP litigation is patent litigation, which is subsequently exhausted in all other EU Member States. If the not greatly affected by EU law. Once the Unified Patent Court UK remains in the EEA, that principle will continue to apply is successful and the transitional period has passed, it can be because it has been expressly provided for in Protocol 28 of the expected that all national courts will become less significant EEA Agreement. than they are now, although if the UK is not part of the UPC, it is likely to remain an important jurisdiction in its own right. If the UK does not remain in the EEA, however, then, depending on what is negotiated with the EU, it may become There will be some immediate changes to UK IP law upon possible to prevent the importation into the UK of goods that leaving the EU, particularly in relation to unitary rights. It have previously been put onto the market in the EEA, that is to would be advisable for parties to take the practical steps we say, to prevent parallel importation. Also, being free to adopt have set out above. Over the longer term, we would expect its own approach to exhaustion, the UK could, in relation to some divergence from EU law, particularly if the UK also trademarks, revert to international exhaustion. On the other leaves the EEA. hand, the CJEU and the EFTA Court have interpreted those IP harmonizing directives and regulations that incorporate a The forthcoming UPC will now be delayed as a result of the corresponding exhaustion of rights exception as precluding Brexit vote, with the length of the delay dependent on political international exhaustion. Thus if the UK does not remain in will. We believe, however, that in the course of time, and after a the EEA, then IP rights could be used to stop exports from the possibly extended teething period, it will become a significant UK into the EEA, absent agreement to the contrary. forum in which patents are litigated. It seems likely that patent disputes will routinely be litigated in both the United States and the UPC in due course.

Trevor Cook and Anthony Trenton lead the firm’s IP litigation practice in Europe. We are happy to discuss further details of the effect of Brexit on UK IP law and on the UPC, and strategies for preparing for the UPC, including opt-out strategy, which parties should continue to consider. FOR MORE INFORMATION, PLEASE CONTACT: Trevor Cook | Partner, Intellectual Property Litigation | +1 212 230 8826 | [email protected] Lisa Pirozzolo | Partner, Intellectual Property Litigation | +1 617 526 6388 | [email protected] Mark Selwyn | Partner, Intellectual Property Litigation | +1 650 858 6031 | [email protected] Anthony Trenton | Partner, Intellectual Property Litigation | +44 (0)20 7872 1005 | [email protected]

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